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June 10, 2014

Netflix is retreating from its finger-pointing tactics, phasing out a trial of naming specific Internet service providers for customers' slow download speeds.

Coming on the heels of a cease-and-desist letter issued by Verizon Communications late last week, Netflix's move marks a sudden turn in its effort to turn up the heat on Internet providers as they argue over where the bottleneck lies in streaming video. In May, Netflix began issuing specific messages to customers - on the buffering screen shortly before the movie begins playing - saying that their Internet provider's crowded network is to be blamed for slow download speeds. "The Verizon network is crowded right now. Adjusting video for smoother playback," read one of Netflix's messages.

The message screen, which Netflix said was a part of its "transparency campaign," went unnoticed until a user tweeted about it on June 3. Netflix confirmed it on the following day, and Verizon threatened to take legal action if the campaign continued. "We are testing this across the U.S. wherever there is significant and persistent network congestion," wrote Netflix spokesman Joris Evers on a company blog Monday. "This test is scheduled to end on June 16. We will evaluate rolling it out more broadly."

Netflix said the campaign was meant to inform customers on the performance of Internet providers, which typically offer broadband connections starting at about five megabits (Mbps) of data downloaded per second in cities. The average Netflix stream is about 2 Mbps, with most streams ranging from 256 kilobits per second to 5.8 Mbps, it said. That is "a fraction of the bandwidth most consumers purchase from their broadband provider," Evers wrote.

Verizon, which called Netflix's message campaign "a PR stunt," says data traffic can be slowed by a variety of factors, including the connections between third-party data distributors and Internet providers' networks, in-home wiring, Wi-Fi and device settings. "Verizon demands that Netflix immediately cease and desist from providing any such further 'notices' to users of the Verizon network," wrote Verizon general counsel Randal Milch last week to Netflix's chief lawyer, David Hyman. "Netflix's false accusations have the potential to harm the Verizon brand in the marketplace."

While agreeing to end the campaign, Netflix insisted Monday that data congestion is a persistent problem for its customers. "Some broadband providers argue that our actions, and not theirs, are causing a degraded Netflix experience," Evers wrote. "Netflix does not purposely select congested routes." Netflix maintains that congestion occurs at the "Last Mile," the connection between the Internet provider's network and customers' homes. The broadband provider "hasn't provided enough capacity to accommodate the traffic their customer requested," Evers wrote. "Some large U.S. (Internet service providers) are erecting toll booths, providing sufficient capacity for services requested by their subscribers to flow through only when those services pay the toll," he said. "We believe these ISP tolls are wrong."

Internet providers say their financial deals with content providers and other third-party content distributors are routine and have been around for years. Earlier this year, Netflix signed deals to pay Comcast and Verizon to have its servers connect directly to the ISPs' networks - rather than going through third-party distributors - with the aim of improving customers' experience in watching Netflix movies.

After signing the Comcast deal, Netflix said it entered into the agreement reluctantly. Netflix then urged federal regulators to adopt new Open Internet rules that will force Internet providers to treat equally all legal content that flows through their pipes. Netflix had refrained from directly criticizing Verizon until its screen message in May. USA Today

The New York State Public Service Commission scheduled three hearings for this month on Comcast Corp.'s proposed $45.2 billion acquisition of Time Warner Cable Inc., which has about 2.6 million subscribers in New York. Philadelphia-based Comcast serves only 23,000 customers in three New York counties. The hearings are scheduled for Monday in Buffalo, June 18 in Albany, and June 19 in New York City. State and federal authorities are reviewing the proposed deal for anticompetitive concerns and public interest benefits. Philadelphia Inquirer